Industry Clusters and Metropolitan

Economic Growth and Equality

Jonathan Q. Morgan

School of Government
University of North Carolina at Chapel Hill

Abstract

Despite the recent popularity of industry clusters, we know very little

about their influence on regional economic development outcomes.
This article advances what we know by examining the extent to which
industry clusters are associated with higher levels of economic growth
and equality in metropolitan areas. The analysis focuses on the extent
to which clusters affect typical economic development outcomes such
as growth in employment and per capita income. Indicators of intra-
regional economic equality are also included to determine the extent to
which clusters can be utilized to achieve a broader set of economic
development goals like regional equity and inner city prosperity. The
relationship between clusters and economic growth and equality is
estimated using bivariate correlation and multiple regression analysis
of data for metropolitan statistical areas (MSAs) in the U.S. The
findings suggest that the contribution of industry clusters to
metropolitan economic performance is not automatic and that all
clusters are not created equal in terms of their ability to bring about
economic development.
*

*
AUTHOR’S NOTE: The research for this article was
funded by a U.S. Department of Housing and Urban
Development (HUD) Doctoral Dissertation Research Grant.
The statements and opinions are those of the author and do
not necessarily reflect the official views of HUD.

International Journal of Economic Development

Volume ine, umber 4, pp. 307-375
2007
308

ITRODUCTIO

This article examines the potential of industry clusters

as an economic development strategy for metropolitan
regions and their central cities. The cluster concept has
become increasingly popular as a tool for localities and
regions to use in understanding their economies and taking
actions to become more competitive. According to
Rosenfeld (2002), “conceptually, industry clusters have
become the sine qua non1 of economic development policy
in many parts of the world” (p. 5). However, it is no new
discovery that certain regions tend to specialize in
particular industries. Whether it is automobile production
in Detroit, software development in Silicon Valley, motion
picture production and entertainment in Los Angeles,
financial services in New York, or furniture manufacturing
in High Point and Hickory, North Carolina, firms in certain
industries display a propensity to locate in particular
geographic areas. At least that much about industry
clusters is obvious. What is less clear is the extent to which
clusters make a tangible difference in terms of helping
regions achieve desired economic development outcomes.

The beneficial effects of clusters are mostly taken for

granted. Policy makers and practitioners assume that the
promotion of clusters will result in improved local
economic conditions. Empirical evidence demonstrating a
strong link between clusters and regional economic
performance has been tentative and inconclusive. Still,
many jurisdictions continue to embrace and implement
cluster-based policies. Given the widespread adoption of
the cluster approach, it is important to document how
regions can expect to benefit from the clustering
phenomenon. As such, this article attempts to provide
additional evidence on the association between industry
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clusters and measurable indicators of economic

development.

The research task at hand is complicated by the fact that

the industry cluster paradigm suffers from inconsistent
definitions, imprecise measurement, lack of empirical
testing, and an unclear grounding in theory (Doeringer and
Terkla 1995; Feser 1998a; Held 1996; Martin and Sunley
2003). Though to advance what we know about cluster-
based development, we must continue trying to verify the
theoretical benefits that clusters portend. This article does
so by examining how industry clusters contribute to
regional economic performance using data on metropolitan
areas in the U.S. during the period from 1990-2000. The
research contributes to the literature by examining the
extent to which the economic performance of metropolitan
regions in the U.S. varies in relation to the degree of
specialization in certain industry sectors. Additionally, the
research informs both theory and policy by identifying the
particular industries for which cluster-based policies might
be expected to contribute to regional economic
development.

Following this introduction, the article reviews the

literature pertinent to understanding the relationship
between industry clusters and regional economic
development. Drawing from the literature and previous
research, the next section sets forth the analytical
framework used to predict and examine how clusters might
affect specific regional economic development outcomes.
After explaining the study’s research design and methods, I
report the results of the statistical analysis. The article ends
with a brief summary of the key findings and a discussion
of their implications for theory and policy.
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LITERATURE REVIEW

Clusters and Competitive Advantage

Hardly a novel idea, the cluster concept has intellectual

roots dating back to British economist Alfred Marshall and
his writings on industrial districts in the early 1900s.2
Contemporary scholars and analysts like Michael Porter
(1990) and Stuart Rosenfeld (1997) have expanded on
Marshall’s work to emphasize the importance of having
specialized institutions and infrastructure to support the
firms in a cluster. Others writers accentuate the supply
chain linkages between firms across industry sectors (Feser
and Bergman 2000). The socio-institutional, policy, and
supply chain linkage dimensions of clusters are important,
but only when a critical mass of firms exists in the first
place. In other words, having a critical mass of firms is
most often a precondition for a cluster to form and
develop.3

Therefore, in the most basic sense, an industry cluster is

a critical mass or geographic agglomeration of firms within
a particular industry or group of related industries. Key
advantages accrue to firms simply because they are located
in close proximity to each other (Porter 2000). By
“clustering” firms can enjoy cost savings and efficiencies
arising from economies of scale. For example, firms in a
cluster can increase their profitability by doing business
with nearby firms and customers, thereby reducing
transaction costs. Classical agglomeration theory refers to
these advantages and cost savings as external localization
economies (Malizia and Feser 1999; Feser 1998a; Maki and
Lichty 2000). To understand the influence of industry
clusters on economic development outcomes in terms of
agglomeration requires a focus on these advantages that
firms in spatially localized industries enjoy.
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According to agglomeration theory, when related firms

are in close proximity to each other they generate a
competitive advantage from cost savings, productivity
gains, knowledge spillovers, and increased access to
specialized inputs like labor and technology (Feser 1998b).
Over the past decade, a number of quantitative studies have
sought to empirically verify the extent to which
geographically proximate concentrations of related firms
create the kinds of economic advantages suggested by
agglomeration theory. These studies vary considerably in
terms of the level of geography studied; specification of
dependent variables measuring economic performance;
indicators of clustering/industrial agglomeration used; and
inclusion of other regional factors as control variables
(Barkley et al. 1999; Kim 1998). While there is some
overlap, the previous quantitative empirical research on the
benefits of industry clusters can be divided into studies that
examine:

1. The relative impact of localization economies,

competition, and urbanization economies on firm
and industry performance.

2. How industrial structure (e.g., specialization vs.

diversity; small vs. large firms) affects the
performance (employment growth, innovation level,
labor productivity) of individual industries within a
region.

3. How industrial agglomeration affects the

performance (employment growth, income, wages)
of regions as a whole.

The theoretical proposition that the clustering of

economic activity in a place creates certain advantages that
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benefit firms and industries has been examined extensively

in the literature (items one and two above). Much of the
previous research on the economic development impacts of
industry clusters deals with the relative importance of
localization and urbanization economies and local
competition in stimulating growth (e.g., Henderson 1997;
Glaeser et al. 1992; Henderson et al. 1995; Barkley et al.
1999). These studies examine how industrial
agglomeration affects economic performance at the level of
individual industries rather than at the aggregate regional
level. Localization economies are the static cost savings
and dynamic knowledge spillovers that firms within a
single industry enjoy as a result of being in close proximity
to one another.4 Urbanization economies are the cost
savings and knowledge spillovers that come about from
increases in the scale of activity in a region. With
urbanization economies, the breadth and diversity of
economic activity in a place are the source of the positive
externalities. Thus, firms across multiple industries will
benefit from urbanization as the scale of economic activity
and size of a place increase.5

This body of work focuses on industry level growth

because it attempts to determine if, and which, industry
sectors perform better under conditions of specialization or
economic diversity. In these studies, localization effects
are captured in measures of industrial concentration or
specialization and urbanization effects are measured as the
level of industrial diversity within a local economy. The
findings from this research are mixed. Some studies
confirm the importance of localization economies in
enhancing the growth and performance of spatially
concentrated industries (e.g., OhUallachain and
Satterthwaite 1992; Barkley et al. 1999; Henry et al. 1997;
Gabe 2003). Others find that urbanization economies are
most critical to industry growth providing support for the
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Jacobs (1969) diversity hypothesis (e.g., Glaeser et al.

1992; van Soest et al. 2002; Combes 2000). A general
pattern in these empirical results is that traditional, mature
manufacturing sectors tend to perform better when they are
highly concentrated in an area while high technology and
service sectors appear to thrive in economically diverse
settings.6

In addition, some studies examine Porter’s (1990)

hypothesis regarding the role of intense local competition
in enhancing the growth effects of intra-industry
knowledge spillovers (van Soest et al. 2002; Glaeser et al.
1992). Both Romer (1986) and Porter (1990) predict that
growth in an industry will increase as its level of
concentration in a place increases. However, Porter argues
that a competitive industrial environment is better than a
monopolistic one because it results in more innovation and
growth. Jacobs (1969, 1985) predicts that industrial
diversity and competition are better for growth.

Specialization versus Diversity: A False Dichotomy?

The vigorous debate in the literature as to whether

specialization or diversity is better for growth may rest on a
false dichotomy between the two concepts. The general
view is that specialization connotes a lack of economic
diversity and vice versa. If so, then the promotion of
industry clusters runs the risk of creating highly specialized
local economies that have put all their proverbial eggs in
one basket. If local economies are specialized in a single
industry or only a few sectors, they are indeed more
vulnerable to cyclical declines in those industries.
However, another view suggests that specialization and
diversity are not necessarily incompatible (Glasmeier
2000). Malizia and Feser (1999) define economic diversity
as “the presence of multiple specializations” (p. 92). It is
314

possible then that local economies can be highly

specialized in certain industries and at the same time
possess a healthy mix of economic activities overall.
Henderson (1997) provides some empirical support for this
supposition and concludes that “to maintain strength in a
particular industry a location wants concentration of
employment in that industry, yet it also wants a
surrounding diverse industrial base” (p. 469). As such, the
current article is less concerned with addressing the relative
importance of industrial specialization versus diversity in
enhancing industry level growth. Rather the focus here is
squarely on the potential influence of clusters (i.e.
industrial concentration) on aggregate regional economic
performance.

Direct and precise measurement of localization

economies is methodologically complex and problematic
and must be done at the individual industry or
establishment level.7 Since the current study is concerned
with the relative performance of clustered regional
economies at a macro-level, it does not seek to measure
localization economies directly. Rather, it examines how
metropolitan economic growth and equality vary in relation
to the extent of industrial clustering or concentration in a
region. The fundamental question is whether or not
clustering makes not only firms and industries more
competitive but the regions in which they are located as
well. That is to say, do the localization economies that
improve the performance of firms and industries, in turn,
help regions create more jobs, raise income levels, and
reduce economic disparities?
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The Relationship between Industry Agglomeration and

Regional Economic Performance

Theoretically, and to some extent empirically, it is

apparent that the clustering of economic activity in a place
creates certain advantages that benefit firms and groups of
related firms in terms of enhanced growth. However, from
a strategic public policy perspective, we need to know
whether or not industry clusters make a positive difference
for regional economic performance. If the promotion of
clusters is to be a rational policy choice for cities and
regions, then the benefits of clusters should somehow
extend beyond firms and industries to measurably
contribute to improved economic outcomes at the macro
regional level. We now turn to the previous research on
this specific question.

Only a few studies have examined the extent to which

clusters contribute to macro-level regional performance.
OhUallachain (1992) analyzed the relationship between
economic structure and regional employment and income
growth in the 150 largest metropolitan areas (SMSAs) in
the U.S. The stated purposes of the study were “to
determine the usefulness of industrial clusters in explaining
metropolitan growth” and “identify those particular
groupings that had the strongest effects”(p. 69). Using
factor analysis, OhUallachain grouped two-digit industry
sectors into geographic “clusters” based on the distribution
of employment shares in each industry across metro areas.
These clusters were included in the regression models as
independent variables. The 1977-1986 growth rates for
total employment and per capita personal income at the
aggregate metro region level were included as dependent
variables. The results revealed that five out of 18 clusters
had a positive effect on both employment and per capita
income growth. They were high-order services, high-tech
316

manufacturing, state and local government, textiles and

construction, and insurance. The retail trade and recreation
service clusters were notable among the clusters that were
positively related to metro employment growth but
unrelated to income growth.8 The study concluded that
industry clusters are good predictors of metropolitan
employment and per capita income growth (OhUallachain,
1992, p. 83).

More recently, Porter (2003) examined the role of

industry clusters in the U.S. economy during the period
1990 to 2000 as part of a larger study on the economic
performance of regions. Using states in the U.S. as the
primary unit of analysis, Porter derived 41 traded clusters
comprised of multiple industries. He then applied these
cluster definitions to Economic Areas (EAs) in the U.S. as
designated by the Bureau of Economic Analysis. Porter
does not directly measure localization economies and
beneficial externalities. Rather he assumes they exist and
can be implied from the tendency of certain industries to
co-locate based on employment correlations across sectors.
Neither does he attempt to measure linkages to supporting
institutions though they are an explicit component of his
conceptual definition of clusters. Nevertheless, this study
by Porter is ambitious in scope and reveals additional
insight into the relationship between clusters and regional
economic performance. Porter’s (2003) most relevant
finding for our purposes here is that cluster strength, based
on employment concentration, is a significant determinant
of regional economic performance.

AALYTICAL FRAMEWORK

There are different ways to conceptualize clusters, and

they have implications for how to study the effects of
clusters on regional economic performance. Gordon and
 317

McCann (2000) provide a useful framework for specifying

key dimensions of clusters. Based on their typology, we
can conceive of clusters along a continuum, from a mere
critical mass to supply chains to social networks. The
simplest type of cluster requires only the existence of a
geographically concentrated mass of firms that have
common needs and operate on a sufficient scale to generate
economic benefits. In a supply-chain cluster, firms engage
in production-related business transactions with one
another. A social-network type of cluster presumes some
level of non-market collaboration among the firms in a
cluster.

These cluster types are not necessarily mutually

exclusive, although each emphasizes certain aspects of
industrial clustering that may have different implications
for economic development. They all provide a partial
response to the question of what distinguishes a cluster
from a group of firms that happen to be located near one
another. They vary with respect to the nature and the extent
of cluster relations, the level of interdependence, and the
role of supporting institutions. Since the current study
defines clusters as critical mass, a full explication of each
type of cluster is not warranted here. Though much of the
recent literature emphasizes production-related supply
chain clusters (e.g., Feser and Bergman 2000) and social
network-based clusters (e.g., Porter 1998; Rosenfeld 1996 ;
Hendry et al. 1999; Molina-Morales 2005), for our
purposes here, we assume that having a simple critical mass
of firms in a particular industry is the starting point for
these more advanced types of clusters.

Clusters as Critical Mass

In the pure agglomeration model, industry clusters are

defined simply as a critical mass or geographic
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agglomeration of firms within a particular industry or group

of industries. The pure agglomeration model “presumes no
form of co-operation between actors beyond what is in their
individual interests in an atomized and competitive
environment” (Gordon and McCann, 2000, p. 517). The
model is based largely on Marshall’s (1920) original
concept of the industrial district with its emphasis on
external localization economies. It gives prominence to the
role of proximity, per se, in reducing costs and enhancing
the efficiency of market transactions. In pure
agglomeration clusters, relations between firms may not be
identifiable given that “linkages are diffuse, unstable and
not necessarily recognized even by the parties involved…”
(Gordon and McCann, 2000, p. 529). Membership in the
cluster is open to any firm in the local area due to the
“absence of formal structures or strong long-term relations
between businesses” (Gordon and McCann, 2000, p. 518).
This critical mass of firms may constitute what Enright
(2000) terms a “latent cluster” if it lacks the interaction and
information flows needed to maximize the benefits of co-
location.

The model of pure agglomeration is primarily concerned

with the quantitative economic cost savings that are
available to firms located in regional industry clusters.
From this perspective, the geographic concentration of
related firms in a particular place is sufficient alone to
create direct economic benefits for both firms and
industries. “The system is without any particular
observable organization or interagent loyalty, and simply
functions as an ecology of activities benefiting from
proximity…” (Gordon and McCann, 2000, p. 517). That is
to say, the external economies made possible by proximity
are what make a cluster a cluster. Cluster firms may not
necessarily transact business with each other. Synergy, in
terms of a collective identity, interdependence and
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collaborative activity, is not required to realize the

economic advantages of clustering. Nor is any deliberate
policy, strategy, or institutional framework needed to
activate and engage regional clusters.

Agglomeration theory is not necessarily explicit in how

industrial concentration might improve the performance of
regional economies as a whole. However, it can be
logically implied that the costs savings and efficiencies
accruing to firms and industries within an agglomeration or
cluster will result in improved macro-level economic
outcomes. It seems that confirmation of this relationship is
crucial for industry cluster theory and policy, given that the
cluster approach has been touted as a highly effective
economic development strategy and adopted by policy
makers and practitioners around the world. If the benefits
of clusters do not extend beyond the firm/industry level to
the larger regional economy then the potential of cluster-
based policies for achieving economic development is
suspect.

As previously noted, relatively few prior quantitative

studies have sought to determine if clusters actually create
the kinds of economic advantages for regions implied by
agglomeration theory that result in improved regional
economic performance. Of the prior studies, the ones most
relevant to the current study were conducted by
Ohuallachain (1992, 1991) and Porter (2003).
Ohuallachain (1992) found five clusters to be good
predictors of growth in both metropolitan employment and
per capita income between 1977 and 1986. Porter (2003)
concluded that the strength of traded clusters strongly
influences average regional wages during the period 1990
to 2000. These findings and, by implication, the tenets of
agglomeration theory, suggest the following hypothesis:
320

H1: Regional industry clusters (levels of

industrial concentration/specialization in a
region) are positively associated with
metropolitan economic development
(aggregate employment growth, per capita
income growth).

Unlike Porter (2003) and most others studying the

effects of clusters, this article defines and measures
metropolitan economic development in a way that captures
not only aggregate regional economic growth but economic
conditions in central cities relative to their surrounding
suburbs as well. This focus on regional economic disparity
is a distinctive empirical contribution to the cluster
literature. By including indicators of regional economic
equality, the study is able to determine what effect
metropolitan industry clusters have on economic outcomes
in central cities vis-à-vis their nearby suburban areas. This
particular aspect of the research question derives more from
public policy concerns than agglomeration/cluster theory
per se. However, if we define economic development in
this broader sense with a focus on how growth is
distributed, it logically follows that clusters would be
expected to improve the relative condition of central cities.
In other words, if clusters are expected to enhance
aggregate metropolitan economic performance, they should
have a similar effect on central cities in terms of reducing
economic disparities within regions. Empirically testing
for this relationship sheds light on the usefulness of the
industry cluster approach for creating inner city economic
opportunity and facilitating regional prosperity that is
widely shared.

In a recent article, Rosenfeld (2003) poses the question

in this way: “Can clusters become equitable and just tools
 321

for economic development or do cluster strategies skew

resources to those already better off?” (p. 359). To get at
this question, a second hypothesis is proposed:

H2: Regional industry clusters (levels of

industrial concentration/specialization in a
region) are associated with greater economic
equality (i.e. less disparity) between central
cities and suburban areas.

If the cluster framework is to be relevant for inner city

economic development it should be informed by recent
research demonstrating that economic disparity between the
central cities and suburbs tends to harm overall regional
competitiveness (Wiewel and Schaffer 2001; Voith 1998).
The usefulness of the cluster approach for inner city
economic development lies in its ability to “recognize that
issues concerning inner city development are central to, and
not separate and apart from, issues concerning the
development of metropolitan economies” (Robinson-
Barnes, 1995, p. 128).

METHODS

The analysis employs bivariate correlation and

multivariate regression analysis to test the hypothesis that
metropolitan regions derive a competitive advantage from
the presence and strength of their geographically
concentrated industry clusters. This hypothesis is an
outgrowth of agglomeration theory, which suggests that
firms and industries will benefit from the agglomeration
economies that clusters generate. I examine whether the
external economies that create a competitive advantage for
firms and industries located within clusters translate into
improved regional economic outcomes. The hypothesis of
a positive relationship between clusters and metropolitan
322

economic performance is tested to determine the extent to

which variation in regional economic outcomes is
explained by the level and type of industrial concentration
in a region. In this section, I explain my use of the
metropolitan region as a unit of analysis, describe the
variables and their data sources, and briefly outline my
approach to the statistical analysis.

The Metropolitan Region as a Unit of Analysis

The metropolitan region is the unit of analysis for this

study. Data were compiled for all 317 Metropolitan
Statistical Areas (MSAs) and Primary Metropolitan
Statistical Areas (PMSAs) in the United States in 1990 as
defined by the U.S. Office of Management and Budget.
MSAs and PMSAs represent aggregations of counties
based on population density and commuting patterns to the
central cities in the region. In New England states, MSAs
are comprised of cities and towns rather than counties. To
be designated an MSA an urban region must include either
one city with a minimum of 50,000 people or an urbanized
area as defined by the U.S. Census Bureau and a total
metropolitan population of at least 100,000.

Metropolitan regions are preferable as the unit of

analysis for this study, because “unlike the nation, or
census regions, or states or counties whose boundaries are
administratively or politically determined, the definitions of
(and the boundaries for) metropolitan areas are based on
market or economic criteria” (Madden, 2000, p. 11). The
delineation of multi-jurisdictional metropolitan regions
acknowledges the economic interdependencies that cut
across political and administrative boundaries. Barnes and
Ledebur (1998) argue that metropolitan regions are “the
basic economic units and the building blocks of the U.S.
economy” (p. 20).
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Dependent Variables

The variables for the quantitative analysis are derived

from the two hypotheses regarding the relationship between
industry clusters and urban economic development. (See
Appendix A for a complete list of variables used in the
statistical analysis.) Since the dependent variables in the
quantitative analysis are continuous and based on metric
data, ordinary least squares (OLS) multiple regression is
used.

To test the hypothesis that regional industry clusters are

associated with increased economic development, two
dimensions of urban economic development are examined:
metropolitan economic growth and economic disparity
between central cities and suburbs. Metropolitan economic
growth typically refers to the overall functioning of the
urban economy and does not take into consideration the
distribution of growth and related equity issues (Wolman
1987). In this study I use a broader definition of urban
economic development that encompasses equity concerns.
Therefore, I operationalize the concept by measuring both
aggregate regional growth and intra-region economic
disparity.

Metropolitan Economic Growth. There are a number of

ways to measure metropolitan economic growth using
secondary data sources (see Coomes 1998). Two widely
accepted indicators of metropolitan economic growth are
included as dependent variables. The first is EMPPCHG
measured as the percent change in total employment from
1990 to 2000. The data for the employment growth
variable were derived from employment numbers provided
by the U.S. Bureau of Economic Analysis Regional
Economic Information System. The second is PCINPCHG
324

measured as the percent change in real per capita income

between 1990 and 2000. In contrast to Porter (2003), I use
per capita income growth instead of average wage growth
as a broader metric of economic performance. Per capita
income data were compiled from metropolitan
socioeconomic indicators downloaded from the Lewis
Mumford Center for Comparative Urban and Regional
Research web site at [Link] The
Mumford Center data are derived from the decennial
census.

Metropolitan Economic Disparity. The economic

disparity between a metropolitan region’s central city and
suburban areas is included to capture the potential of
industry clusters for achieving inner city economic
development. Two indicators of economic disparity are
included to test the hypothesis that metro regions with
industry clusters will tend to have less disparity between
their central cities and suburbs. The first is INCDISP
measured as the ratio of central city per capita income to
suburban per capita income in 2000. The second is
HOMEDISP measured as the ratio of central city
homeownership to suburban homeownership in 2000. The
relative levels of per capita income and home ownership
between the central city and suburbs are a good proxy for
the distribution of wealth and economic prosperity within
metropolitan regions. Data for these two variables were
also obtained from data compiled by the Lewis Mumford
Center for Comparative Urban and Regional Research.

Independent Variables

Regional Industry Clusters. To assess the relationship

between industry clusters and metropolitan economic
development requires determining which clusters exist in
metropolitan regions. There are a variety of approaches to
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measuring industry clusters for empirical purposes.

Perhaps the most common and straightforward approach
involves calculating a measure of relative concentration,
called the location quotient, for individual industry sectors
or groups of sectors thought to be related in some way9
(Miller et al. 1991). The location quotient is an indicator of
regional specialization. For this study, clusters are
measured using two indicators: 1) the level of relative
industrial concentration or location quotient based on
employment, and 2) whether or not a region has an above
average concentration of employment within a particular
industry sector.10

The first cluster variable is a continuous variable

measured as the level of industrial specialization in a region
relative to the U.S. as a whole for an industry sector. The
second cluster variable is a dummy (dichotomous) variable
indicating whether or not a particular industry has attained
sufficient critical mass to be considered a “cluster.” A
region qualifies as having a particular cluster if its level of
employment concentration in an industry sector is “above
average” i.e., at least 125 percent of the national
concentration in that sector (i.e. if it has location quotient
values exceeding 1.25).

Data for the cluster variables were compiled from the

U.S. Census Bureau’s County Business Patterns database.
I calculated relative industry employment concentrations or
location quotients at the two-digit SIC (Standard Industrial
Classification) level for 28 industry sectors for all MSAs in
1990.11 A relative measure of industrial employment
concentration is preferable to absolute employment because
it mitigates the bias in the data toward larger metropolitan
regions (Ohuallachain 1991; Bergsman et al. 1972).
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Control Variables

This study can be located within the broader literature

that explains variation in regional economic performance,
to the extent that it attempts to understand how one factor
in particular—industry clusters—influences regional
economic outcomes. Without question, there are multiple
factors, in addition to clusters, that influence the economic
development performance of regions. The most common
factors analyzed in previous studies of the determinants of
economic growth include: labor force characteristics, tax
and fiscal policies, government spending, local
development policies, and levels of social capital. In
studies of industry cluster impacts, these factors are often
included as control variables.

The literature suggests that a number of these variables

should be included in the regression models to control for
significant factors, other than clusters, that might influence
metropolitan economic development. This study does not
purport to propose a complex econometric model of
regional growth that captures all possible factors
contributing to variation in metropolitan economic
performance. Rather, the study is primarily concerned with
determining the relative importance of one variable in
particular: industry clusters. To isolate the unique
influence of clusters, I included the following explanatory
variables in the regression analysis as controls:

• Population size and density

• Base-year economic conditions
• Workforce educational attainment
• Local tax revenues
• Local government expenditures
• Region of the U.S.
 327

See Appendix B for a full description of each control

variable and the justification for including it in the analysis.

Statistical Techniques

In the first part of the quantitative analysis, bivariate

correlations were calculated using SPSS to examine
associations between the industrial concentration and
cluster dummy variables and the regional growth and
equality variables. I then ran separate multiple
regressions12 for each of the 28 industries to see what
happens to the relationship between industrial
specialization and economic development after controlling
for other selected factors that the literature suggests might
influence economic performance. In this way, the
importance of clusters relative to other variables can be
assessed. In reporting and interpreting the correlation and
regression results, I use significance levels as cutoff values
for assessing the importance of observed statistical
relationships. Since the data are not a random sample,
statistical significance does not have the meaning it would
in a study with random data. It is common practice in
social science research to use significance levels in this
way, with enumerated data, as arbitrary cutoff points in
interpreting the importance of findings.

RESULTS

Agglomeration theory suggests that having a critical

mass of firms in related industries creates economic
benefits for those firms and industries. By extension, we
can posit that the firm- and industry-level gains from
clusters will result in higher levels of economic
development for the regions in which clusters are located.
Thus, regions with higher levels of industrial concentration
328

are expected to perform better in terms of economic

development. For this study, economic development
constitutes both economic growth and the equitable
distribution of growth within a region.

In this section I examine the extent to which regional

industry clusters contribute to measurable differences in
economic development outcomes across metropolitan
regions of the U.S. I present the findings from the
correlation and regression analyses that show the statistical
relationship between regional clusters and indicators of
metropolitan economic development. The results for the
association between clusters and metropolitan economic
growth are presented first, followed by the findings for
regional economic equality.

Clusters and Metropolitan Economic Growth

The first hypothesis tested is that regional industry

clusters (levels of industrial specialization) are positively
associated with metropolitan economic growth (aggregate
employment growth, per capita income growth). Support
for this hypothesis was modest at best and varied by type of
industry. In fact, for a number of industries an inverse
association with the economic performance variables was
observed. Bivariate correlations between the two industry
cluster variables and the two indicators of economic
performance were calculated in SPSS. The bivariate
correlations between each of the cluster variables and the
two economic performance variables are shown
respectively in Tables 1 and 2. Of the 28 industry sectors
analyzed, 11 were found to have a statistically significant
correlation between industrial specialization and either
employment change or per capita income change. In only
three sectors was the level of industrial concentration
correlated with both employment change and per capita
 329

income change: agricultural services, amusement and

recreation services, and engineering and management
services. This suggests that for some industries, the level
of relative concentration in a region does indeed appear to
influence metropolitan economic performance. However,
the direction of the effect is not always in the positive
direction as hypothesized.

Irrespective of whether the level of concentration is

above average or not, higher relative employment
concentrations were positively and significantly correlated
with regional employment growth mostly in service sector
industries. These include agricultural services,
communications, business services, amusement and
recreation, and engineering and management services.
Amusement and recreation services had the strongest
bivariate relationship overall with employment change in
the positive direction. Higher employment concentrations
within a number of manufacturing sectors such as rubber
and plastics, primary metals, fabricated metals, and
transportation equipment were negatively correlated with
metropolitan employment growth between 1990 and 2000.

In terms of per capita income change, the bivariate

correlations were positive and significant only for industrial
machinery and health services. Negative and significant
relationships were observed for agricultural services,
amusement and recreation services, and engineering and
management services. The relative level of employment
concentration in amusement and recreation services
exhibited the strongest bivariate correlation overall with per
capita income, but in the negative direction.

When a concentration threshold for whether or not a

region has reached sufficient critical mass within an
industry is employed (cluster dummy variable) the bivariate
330

correlations show similar results. As shown in Table 2,

clusters were significantly correlated with economic growth
in metropolitan regions that have attained a critical mass
within 12 of the 28 industries (i.e. location quotient of 1.25
or higher). The correlation results indicate that regions
with the following industry clusters had higher employment
growth between 1990 and 2000: agricultural services,
business services, and amusement and recreation services.
These results are consistent with Ohuallachain (1991) who
also found a positive relationship between the business
services and recreation services clusters and metropolitan
employment growth. Lower employment growth was more
likely in regions that were clustered in certain
manufacturing industries including textile mills, rubber and
plastics, primary metals, fabricated metals, and
transportation equipment. In addition, the transportation
services and health services clusters were negatively
correlated with employment change.

Having attained critical mass was positively correlated

with regional per capita income change for some industry
sectors and negatively so for others. Table 2 shows that the
clusters correlated with higher metropolitan income growth
include primary metals, industrial machinery and computer
equipment, and health services. Clusters associated with
lower per capita income growth in metropolitan regions
were mostly in service industries like agricultural services,
transportation services, business services, and engineering
and management services.
 331

Table 1
Bivariate Correlation Results for
Industrial Specialization and Economic Growth Variables

Pearson r
Employment Per Capita Income
SIC Percent Change Percent Change N
07 Agricultural Services .153* -.335** 279
13 Oil and Gas Extraction -.121 -.084 99
20 Food and Related Products -.008 -.059 272
22 Textile Mill Products -.108 .114 132
23 Apparel -.111 .037 223
24 Lumber and Wood Products .037 .034 253
25 Furniture and Fixtures -.054 .020 217
28 Chemicals -.085 .075 237
30 Rubber and Plastic Products -.141* .121 250
33 Primary Metal Industries -.263** .083 210
34 Fabricated Metal Products -.253** .075 272
35 Industrial Machinery -.073 .209** 273
36 Electronic Equipment -.052 .072 244
37 Transportation Equipment -.140* .046 236
38 Instruments and Medical Devices -.110 -.046 219
42 Trucking and Warehousing .013 .048 281
45 Air Transportation .037 -.083 233
47 Transportation Services .120 .010 246
48 Communications .122* -.033 281
50 Wholesale Trade - Durable Goods -.021 -.013 281
51 Wholesale Trade – Nondurables .008 -.054 281
62 Security and Commodity Brokers -.104 -.113 222
63 Insurance Carriers -.053 .045 277
67 Holding and Investment Offices .055 -.040 211
73 Business Services .194** -.035 281
79 Amusement and Recreation Svcs. .349** -.165** 281
80 Health Services -.079 .122* 281
Engineering and Management
87 Services .168** -.148* 281
** Statistically significant at the 0.01 level
* Statistically significant at the 0.05 level
 332

Table 2
Bivariate Correlation Results for
Cluster/Critical Mass and Economic Growth Variables

Pearson r
Employment Per Capita Income
SIC Percent Change Percent Change N
07 Agricultural Services .242** -.244** 279
13 Oil and Gas Extraction -.016 -.045 99
20 Food and Related Products .006 .033 272
22 Textile Mill Products -.207* .085 132
23 Apparel -.086 .077 223
24 Lumber and Wood Products -.008 .024 253
25 Furniture and Fixtures -.082 .086 217
28 Chemicals -.115 .092 237
30 Rubber and Plastic Products -.142* .081 250
33 Primary Metal Industries -.276** .140* 210
34 Fabricated Metal Products -.239** .059 272
35 Industrial Machinery -.058 .150* 273
36 Electronic Equipment -.067 .060 244
37 Transportation Equipment -.135* .044 236
38 Instruments and Medical Devices -.036 -.006 219
42 Trucking and Warehousing .026 .051 281
45 Air Transportation .012 -.096 233
47 Transportation Services -.100 -.140* 246
48 Communications .077 -.009 281
50 Wholesale Trade - Durable Goods .065 .035 281
51 Wholesale Trade - Nondurable Goods .037 .005 281
62 Security and Commodity Brokers -.106 -.015 222
63 Insurance Carriers -.049 .092 277
67 Holding and Investment Offices .072 -.061 211
73 Business Services .123* .002 281
79 Amusement and Recreation Services .239** -.118* 281
80 Health Services -.131* .139* 281
87 Engineering and Management Services .104 -.155** 281
** Statistically significant at the 0.01 level
* Statistically significant at the 0.05 level
 333

Multiple Regression Results for Economic Growth

Multiple regression helps determine if the relationships

observed in the bivariate correlation analysis hold true after
a number of other relevant factors thought to influence
metropolitan economic development are taken into
consideration (controlled for). Regression, then, enables us
to ascertain the relative importance of industry clusters as a
factor contributing to regional economic growth and
equality.

The multiple regression analysis, with metropolitan

employment percent change as the dependent variable,
revealed statistically significant relationships for the
industry sectors shown in Table 3. Regions with higher
employment concentrations in textile mills and instruments
in 1990 experienced less employment growth between
1990 and 2000. Conversely, higher employment
concentrations in trucking and warehousing, transportation
services, and amusement and recreation services, were
associated with greater regional employment growth.
However, having attained critical mass in certain industries
in 1990 (employment concentrations of at least 125 percent
of the national concentration) does not appear to
appreciably influence employment change. The exceptions
were agricultural services and transportation services.
Above average concentrations in agricultural services were
positively associated with metropolitan employment
change while the opposite was true for transportation
services.

The transportation services industry was positively

associated with employment change in terms of industrial
concentration, but negatively so for the cluster/critical mass
variable. One interpretation for this seemingly
334

contradictory finding is that more of that particular industry

is better for metropolitan employment growth up to a point.
Once critical mass is attained in transportation services the
positive influence on employment growth turns to negative.
In other words, regions with employment concentrations in
transportation services high enough to be considered
“clusters” experienced lower employment growth than
those beneath the critical mass threshold in that sector.

Table 3
Multivariate Regression Results for Metropolitan
Employment Change
Standardized Betas for Statistically Significant Industries

Industrial Cluster
Concentration (LQ>=1.25)
Agricultural Services -.039 .154*
Textile Mill Products -.156ª -.021
Instruments, Optical and Medical -.175* .096
devices
Trucking and Warehousing .200** -.113
Transportation Services .179** -.156**
Amusement and Recreation Services .296** -.020
** Statistically significant at the .01 level
* Statistically significant at the .05 level
ª Statistically significant at the .10 level

Even fewer industries had a statistically significant

influence on metropolitan per capita income change in the
multivariate regression models. These industries are shown
in Table 4. The industrial concentration variable was
negatively associated with metropolitan per capita income
change for agricultural services. This indicates that regions
with higher employment concentrations in agricultural
services industries experienced lower levels of per capita
income growth. Although having an agricultural services
cluster (above average concentration) did not significantly
influence per capita income change in one direction or the
 335

other. The only other sector for which the industrial

concentration variable affected metropolitan per capita
income change was industrial machinery and computer
equipment. Higher employment concentrations in this
knowledge-intensive manufacturing industry were
associated with higher per capita income growth. The
cluster/critical mass variable for this industry had no
statistically significant effect on per capita income change.

Two industry sectors were positively associated with

metropolitan per capita income change based on the
cluster/critical mass variable. These were primary metals, a
manufacturing industry, and health services. Regions with
employment concentrations above the national average in
these industries in 1990 experienced greater change in per
capita income between 1990 and 2000.

Table 4
Multivariate Regression Results for Metropolitan Per Capita
Income Change
Standardized Betas for Statistically Significant Industries

Industrial Cluster
Concentration (LQ>=1.25)
Agricultural Services -.291** -.017
Primary Metal Industries .018 .176*
Industrial Machinery and Computers .179* -.068
Health Services -.084 .163*
** Statistically significant at the .01 level
* Statistically significant at the .05 level
336

Influence of other Explanatory Variables on

Metropolitan Economic Growth

This study is primarily concerned with determining if

and how regional industry clusters contribute to urban
economic development. The study is not designed to
identify the optimal explanatory model of metropolitan
economic growth. Thus the explanatory variables of most
interest are the industrial concentration and cluster/critical
mass variables. However, it is useful to report on the
relative importance of the other variables included in the
regression models.

As it turns out, the multivariate regression results

showed that industry clusters are not necessarily the most
important factors that contribute to metropolitan economic
performance. Table 5 shows the standardized regression
coefficients for the other explanatory variables included in
the regression models for economic performance. Being
located in the northeast region of the U.S. had the strongest
effect on metropolitan employment change in the negative
direction (b = –.451). This is consistent with the findings
of Wolman (1987) and others regarding the relationship
between regional location and metropolitan employment
growth.

The next most important explanatory factor for

employment change was the percent of the population with
a college degree (b = .307). The positive sign for this
coefficient suggests that a region’s level of educational
attainment is a significant predictor of employment growth.
This is consistent with the findings of Bradley and Taylor
(1996) and Wolman (1987) and provides support for human
capital- and workforce-based approaches to economic
development.13 A metropolitan area’s location in the
 337

Midwest U.S. negatively affected metropolitan

employment change (b = –.244).

The most important factor associated with metropolitan

per capita income change was the proportion of a region’s
population with a college degree. Regions with higher
levels of college educational attainment experienced higher
per capita income growth during the study period. This is
not surprising given the growing empirical evidence
regarding the connection between education and income
levels (see Gottlieb and Fogarty 1999). Moreover, this
finding validates the growing recognition that workforce
development is central to economic development efforts.
The renewed interest in human capital and skills
development is evident in the literature on clusters
specifically (e.g. Feser 2003) and in the general literature of
regional competitiveness (e.g. Florida 2002).

Table 5
Multivariate Regression Results for Metropolitan
Economic Growth Variables - Standardized Betas
Other Explanatory Variables

Dependent Variables
Employment Per Capita Income
Independent Variables
Percent Change Percent Change
Metro Population -.022 -.191**
College Attainment .307** .321**
Initial Unemployment Rate -.042 .069
Population Density -.082 -.005
Tax Revenues Per Capita -.040 -.104
Expenditures Per Capita -.032 -.102
Northeastern Region of U.S. -.451** -.269**
Midwest Region of U.S. -.244** .135**
Western Region of U.S. .058 -.234**
N = 281 R-square = .347 R-square = .310
** Statistically significant at the .01 level
* Statistically significant at the .05 level
338

Clusters and Intra-Region Economic Equality

The second hypothesis tested is that regional industry

clusters (levels of industrial specialization) are positively
associated with metropolitan economic equality (central
city-to-suburb per capita income, central city-to-suburb
home ownership) within regions. Empirical support for
this hypothesis was mixed and varied by type of industry.
The bivariate correlations between the industrial
concentration and cluster dummy variables and the two
economic equality variables are shown respectively in
Tables 6 and 7.

Among U.S. metropolitan areas, greater parity in per

capita income between the central city and suburbs was
positively and significantly correlated with higher levels of
employment concentration in nine of the 28 industry
sectors studied. These industries were primarily traditional
sectors including agricultural services, oil and gas
extraction, food products, textile mills, apparel, and lumber.
In addition, for two sectors related to distribution and
logistics—transportation services and non-durable goods
trade—higher employment concentration was positively
correlated with greater intra-region per capita income
equality. Based on the industrial concentration variable,
the amusement and recreation services sector was also
found to be positively and significantly correlated with per
capita income equality. The oil and gas sector (r=.316) and
the textile mill sector (r=.269) had the strongest positive
correlation effects with city-to-suburban per capita income
equality.

By contrast, metropolitan regions with higher

employment concentrations in four particular industry
sectors experienced less equality (i.e. greater disparity)
between city and suburban per capita income levels. Three
 339

of these sectors were in manufacturing: fabricated metal

products (r=-.190), industrial machinery and computer
equipment (r= -.181), and electronic equipment (r=-.142).
The fourth was insurance carriers (r=-.179), which is a
service sector.

The correlation results show that intra-regional equality

in home ownership is positively and significantly correlated
with higher metropolitan employment concentrations in
lower skill, lower wage industries like agricultural services
(r=.228), food products (r=.137), trucking and warehousing
(r=.148), and amusement and recreation services (r=.172).
Employment concentrations in a few higher paying, higher
skill industry sectors were negatively correlated with home
ownership equality. These sectors included electronic
equipment (r=-.174), insurance carriers (r=-.133), and
business services (r=-.133).
 340

Table 6
Bivariate Correlation Results for
Industrial Specialization and Economic Equality Variables

Pearson r
City-to-Suburb City-to-Suburb
SIC Per Capita Income Home Ownership N
07 Agricultural Services .121* .228** 267
13 Oil and Gas Extraction .316** .195 92
20 Food and Related Products .133* .137* 265
22 Textile Mill Products .269** .042 127
23 Apparel .196** .019 217
24 Lumber and Wood Products .136* .002 245
25 Furniture and Fixtures .120 .000 210
28 Chemicals .055 -.032 228
30 Rubber and Plastic Products -.109 -.055 239
33 Primary Metal Industries .016 .091 204
34 Fabricated Metal Products -.190** -.028 260
35 Industrial Machinery -.181** .025 261
36 Electronic Equipment -.142* -.174** 236
37 Transportation Equipment -.122 -.011 226
38 Instruments and Medical Devices -.102 -.110 210
42 Trucking and Warehousing .080 .148* 269
45 Air Transportation .035 -.106 223
47 Transportation Services .225** .045 235
48 Communications .037 -.112 269
50 Wholesale Trade - Durable Goods .002 -.014 269
51 Wholesale Trade - Nondurable Goods .169** .067 269
62 Security and Commodity Brokers -.131 -.125 214
63 Insurance Carriers -.179** -.133* 265
67 Holding and Investment Offices .009 -.114 201
73 Business Services -.085 -.133* 269
79 Amusement and Recreation Services .130* .172** 269
80 Health Services -.010 .057 269
87 Engineering and Management Services -.061 -.080 269
** Statistically significant at the 0.01 level
* Statistically significant at the 0.05 level
 341

The findings from the correlation analysis regarding the

relationship between the cluster/critical mass variable and
economic equality are similar to those for the level of
industrial concentration. As shown in Table 7,
metropolitan regions with clusters in a number of
manufacturing industries tended to have greater per capita
income equality between central cities and suburbs. Most
of these were traditional manufacturing sectors such as
textile mills (r=.247), apparel (r=.146), food products
(r=.124), and lumber and wood products (r=.173). The
positive and significant correlation coefficients for these
industry clusters suggest that they are associated with
greater income equality within metropolitan regions. Two
service industries were positively correlated with economic
equality based on the cluster critical mass variable. These
were transportation services (r=.142) and amusement and
recreation services (r=.163).

Clusters associated with lower income equality (greater

disparity) are those shown in Table 7 with negative
correlation coefficients for city-to-suburb per capita
income. These include manufacturing industries such as
fabricated metals (r=-.226), industrial machinery and
computer equipment, (r=-.131) and electronic equipment
(r=-.138). Two of these industry sectors—industrial
machinery and computers and electronic equipment—are
typically considered to be more knowledge-intensive and
pay relatively higher wages (see Appendix C). That they
also appear to be correlated with greater income disparity is
an interesting finding. The other two industries for which
critical mass was positively correlated with per capita
income equality were security and commodity brokers (r=-
.141) and insurance carriers (r=-.200). These financial
services industries are typically concentrated in larger
metropolitan areas like New York City and Chicago.
342

In terms of home ownership equality within

metropolitan regions, the divergence between the
correlation effects of being clustered in traditional
industries versus knowledge-intensive industries is even
more apparent (see Table 7). Metropolitan regions with
clusters of lower paying, traditional industries like
agricultural services, food products, trucking and
warehousing, and amusement and recreation services had
greater parity in homeownership between central cities and
suburbs. The negative correlation coefficients on the home
ownership equality variable, shown in Table 7, for a
number of knowledge-intensive industries indicate a wider
gap between central city and suburban areas in regions with
such clusters. These industries include chemicals (r = -
.132), electronic equipment (r=-.128), and engineering and
management services (r = -.169).
 343

Table 7
Bivariate Correlation Results for
Industry Cluster/Critical Mass and Economic Equality
Variables

Pearson r
City-to-Suburb City-to-Suburb
SIC Per Capita Income Home Ownership N
07 Agricultural Services .112 .157** 267
13 Oil and Gas Extraction .297** .020 92
20 Food and Related Products .124* .163** 265
22 Textile Mill Products .247** .067 127
23 Apparel .146* -.021 217
24 Lumber and Wood Products .173** .044 245
25 Furniture and Fixtures .044 .013 210
28 Chemicals -.083 -.132* 228
30 Rubber and Plastic Products -.077 -.030 239
33 Primary Metal Industries -.091 .031 204
34 Fabricated Metal Products -.226** -.040 260
35 Industrial Machinery and Equip. -.131* .029 261
36 Electronic Equipment -.138* -.128* 236
37 Transportation Equipment -.095 .058 226
38 Instruments and Medical Devices -.091 -.056 210
42 Trucking and Warehousing .065 .127* 269
45 Air Transportation .037 -.158* 223
47 Transportation Services .142* -.042 235
48 Communications .001 -.102 269
50 Wholesale Trade - Durable Goods .002 .034 269
51 Wholesale Trade - Nondurable Goods .097 .010 269
62 Security and Commodity Brokers -.141* -.147* 214
63 Insurance Carriers -.200** -.140* 265
67 Holding and Investment Offices -.005 -.088 201
73 Business Services -.013 -.158** 269
79 Amusement and Recreation Services .163** .204** 269
80 Health Services .040 .033 269
87 Engineering and Management Services -.072 -.169** 269
** Statistically significant at the 0.01 level * Significant at the 0.05 level
344

Multiple Regression Results for Economic Equality

The multivariate results for intra-regional economic

equality were not as strong as they were for economic
performance. The industry sectors found to be significantly
associated with per capita income equality, after controlling
for other factors, are shown in Table 8. Metropolitan
employment concentrations in transportation services and
durable goods trade were positively related to the ratio of
central city-to-suburban per capita income within regions.
That is to say, metro areas with higher concentrations of
employment in these distribution-related industries had
more income parity between their central cities and
suburbs. However, the cluster/critical mass variable for
these sectors showed no relationship with metropolitan
income equality indicating that having concentration above
the U.S. norm offered no additional advantage for income
equality.

In the multivariate analysis, the cluster variable was

inversely related to per capita income equality for three
manufacturing industry sectors: chemicals, primary metals,
and fabricated metals. Metro regions with above average
concentrations or “clusters” of employment in these
industries had less income equality (i.e. greater disparity)
between their central cities and suburbs.
 345

Table 8
Multivariate Regression Results for Metropolitan Per Capita
Income Equality
Standardized Betas for Selected Industries

Industrial Cluster
Concentration (LQ>=1.25)
Chemicals .094 -.163*
Primary Metal Industries .088 -.153*
Fabricated Metal Products -.036 -.190*
Transportation Services .150* .081
Wholesale Trade-Nondurable Goods .169* -.083
* Statistically significant at the .05 level

Employment concentrations in only two of the industry

sectors examined significantly influenced central city-to-
suburban home ownership equality (see Table 9). The
industrial concentration variable for engineering and
management services, a knowledge-intensive sector, was
positively related to the ratio of central city-to-suburban
home ownership. For lumber and wood products, a
traditional manufacturing sector, higher employment
concentrations within a metro area were associated with
less equality (i.e. greater disparity) in home ownership
between central cities and suburbs. No significant
relationship was found between the cluster/critical mass
variable and home ownership equality for any of the
industries studied.
346

Table 9
Multivariate Regression Results for Metropolitan Home
Ownership Equality
Standardized Betas for Selected Industries

Industrial Cluster
Concentration (LQ>=1.25)
Lumber and Wood Products -.170* -.012
Engineering and Management Svcs. .174* -.101
* Statistically significant at the .05 level

Influence of other Explanatory Variables on

Metropolitan Economic Equality

As with metropolitan economic performance, industry

clusters appear to be a less important factor for central city-
to-suburb economic equality, than are a number of other
variables. As shown in Table 10, regional location was the
variable most strongly associated with per capita income
equality after controlling for other factors including
industrial concentration and the presence of a
cluster/critical mass in a sector. The standardized
coefficient of -.356 for the dummy variable representing
location in the Northeast U.S. indicates a stronger effect on
income equality than any of the concentration or cluster
variables. The dummy variable for location in the Midwest
U.S. has a beta weight of -.298. The negative signs for
these two variables suggest that metropolitan regions
located in the Northeast and Midwest tend to have less
income equality (i.e. more disparity) between their central
city and suburban areas. A similar inverse relationship is
evident between the dummy variable for Northeast region
and home ownership equality (b=-.292).

The variable with the strongest effect on the ratio of

central city-to-suburban home ownership was college
 347

educational attainment. It appears that metropolitan

regions with a higher proportion of college graduates have
less equality (i.e. greater disparity) in levels of home
ownership between central city residents and suburban
dwellers. The standardized regression coefficient for the
college education variable of -.411 is a substantial effect
size.

A metropolitan area’s location in the Western region of

the U.S. was positively related to parity in home ownership
between the central city and suburb (b = .289). Levels of
home ownership between central city and suburban
dwellers were more equal in metropolitan areas located in
the West. A metropolitan area’s population density
exhibited a similar positive effect on home ownership
equality. Absolute population size was inversely related to
home ownership equality.
348

Table 10
Multivariate Regression Results for Metropolitan
Economic Equality Variables - Standardized Betas
Other Explanatory Variables

Dependent Variables
Ratio of Central Ratio of Central
Independent
City-to-Suburban City-to-Suburban
Variables
Per Capita Income Home Ownership
Metro Population -.038 -.172*
College Educational -.076 -.411**
Attainment
Initial Unemployment .071 -.079
Rate
Population Density -.002 .207**
Tax Revenues Per -.073 .054
Capita
Expenditures Per -.081 -.050
Capita
Northeastern Region -.356** -.292**
of U.S.
Midwest Region of -.298** .027
U.S.
Western Region of -.018 .289**
U.S.
N = 269 R-square = .260 R-square = .293
** Statistically significant at the .01 level
* Statistically significant at the .05 level
 349

SUMMARY

The quantitative relationship between clusters and

metropolitan economic performance was modest but some
patterns were evident. The effect of clusters was positive
for some industries and negative for others (see Table 11).
Manufacturing clusters, both in traditional and knowledge-
intensive (new economy) industries, were negatively
correlated with metropolitan employment growth. Two of
the higher paying manufacturing clusters were associated
with higher per capita income growth. Service industry
clusters were generally better for metropolitan employment
growth than for per capita income growth. Though two
service clusters deviated from this tendency. The
transportation services cluster was negatively associated
with both employment and per capita income change. The
health services cluster negatively influenced employment
growth but exerted a positive influence on per capita
income growth.
 350

Table 11
Summary Findings for Economic Growth by Type of
Industry
(includes only statistically significant sectors)

Industry Employment Per Capita Income

Cluster/Critical Mass Percent Change Percent Change
Dummy Variable correlation regression correlation regression
Traditional
Manufacturing/Other
Textile mill products −
Primary metals − + +
Fabricated metal −
products
Knowledge-Intensive
Manufacturing
Rubber and plastics −
Industrial machinery +
and computers
Transportation −
equipment
Traditional Services
Agricultural services + + −
Transportation − − −
services
Business services +
Amusement and + −
recreation services
Health services − + +
Knowledge-Intensive
Services
Engineering and −
management services

While regions clustered in traditional manufacturing

industries experienced less employment growth they tended
to have greater per capita income equality (i.e. less
disparity) between their central cities and suburbs. As
shown in Table 12, clusters in a number of traditional,
 351

lower-wage manufacturing industries appear to be

positively correlated with the ratio of central city-to-
suburban per capita income. This suggests that traditional
manufacturing clusters may be a drag on metropolitan
employment growth but at the same time contribute to
greater regional equality. Traditional manufacturing
clusters appear to be bad for job growth but good for
income equality. A possible explanation for this is that
traditional manufacturing industries provide low- and mid-
skill blue-collar jobs that tend to have an equalizing effect
within a region. As regions transition from traditional
manufacturing to higher skill, knowledge-intensive
industries, the opportunities for lessening economic
disparity are diminished to some extent. This is reflected in
the findings summarized in Table 12 that knowledge-
intensive industry clusters are inversely correlated to per
capita income and home ownership equality. This implies
that a possible downside of the new economy might be
increased economic disparity.
 352

Table 12
Summary Findings for Economic Equality
by Type of Industry

Industry City-to-Suburban City-to-Suburban

Cluster/Critical Mass Per Capita Income Home Ownership
Dummy Variable correlation regression correlation regression
Traditional
Manufacturing/Other
Oil and gas extraction +
Food products + +
Textile mill products +
Apparel +
Lumber and wood +
products
Primary metals −
Fabricated metal − −
products
Knowledge-Intensive
Manufacturing
Chemicals − −
Industrial machinery −
and computers
Electronic equipment − −
Traditional Services
Agricultural services +
Trucking and +
warehousing
Transportation +
services
Air transportation −
Amusement and + +
recreation services
Security and − −
commodity brokers
Insurance carriers − −
Business services −
Knowledge-Intensive
Services
Engineering and −
management services
 353

IMPLICATIOS AD COCLUSIOS

The clustering of firms in certain industries does indeed

appear to matter for economic development both positively
and negatively depending on the characteristics of the
industry sector.14 However, the strength of the statistical
correlations is modest in most instances and the
relationships diminish significantly in a multivariate
context when other factors are controlled for. Relatively
speaking, industry clusters, as measured here, seem to
matter less for economic development than other factors.
In particular, the results showed that a metropolitan area’s
level of educational attainment is a better predictor of
regional economic growth than are industry clusters as
defined in this study.

The results for economic equality were mixed but

revealed a distinction between the effects of traditional
clusters versus new economy clusters. Clusters of lower
wage, traditional industries were positively associated with
the economic equality variables. The positive effect on
metropolitan per capita income equality was particularly
notable. Traditional manufacturing clusters appear to be
especially useful for reducing income inequality and the
low-to-mid skill blue-collar jobs they provide appear to
have an equalizing effect within a regional economy. As
we transition away from traditional industries, and the jobs
they provide for less skilled, less educated workers, toward
a knowledge economy, we may lose opportunities for
reducing economic disparities. This raises the real
possibility that the new economy will exacerbate already
existing inequities. That the new economy will likely
worsen rather than mitigate economic inequality is due
largely to the increasing returns that higher skilled
354

knowledge workers enjoy from their labor (Wheeler 2005;

Nakamura 2000). Furthermore, it has been demonstrated
that this wage-skills premium is more acute in metropolitan
areas (Glaeser and Mare 2001; Wheeler 2005).

The findings reported here imply that the contribution of

industry clusters to urban economic development is by no
means automatic. The statistical analysis found only a
modest relationship between certain clusters and increased
regional economic growth and equality. Conversely, some
clusters had a negative effect on these development
indicators. The findings presented here suggest that the
mere existence of a critical mass of firms in related
industries does not guarantee better regional economic
performance. Although critical mass likely creates
advantages for firms and industries, the spillover to the
region as a whole is not certain. This might mean that
industrial concentration represents potential that is often
untapped in the process of economic development.

This begs the question of whether it is agglomeration,

per se, that matters or the socio-institutional factors within
a region that accentuate the benefits of clustering that are
most important. Perhaps having a critical mass of a certain
type of industry is a precondition for a region to gain
advantage from that industry cluster. Critical mass is likely
a necessary but insufficient condition for a region to realize
maximum benefits from industrial clustering. Could it be
that critical mass is less important a factor than the
deliberate institutional and policy mechanisms that a region
puts in place to facilitate collaboration and strategically link
its clusters to regional economic development needs?

For example, one of the strategic linkages that might

help a region take better advantage of its industry clusters is
a stronger nexus between clusters and workforce
 355

development efforts. The relative importance of

educational attainment as a positive influence on
metropolitan economic growth found in this study points to
the potentially crucial role of education and workforce
development in cluster-based economic development
strategies. Indeed, this emphasis on human capital and
skills is reflected in a recent body of work on knowledge-
based occupation clusters (Feser 2003) and the rise of the
so-called “creative class” (Florida 2002).

A region’s linkage and socio-institutional support

mechanisms are dimensions of cluster-based development
that cannot be adequately discerned in quantitative
statistical analysis. So, the lack of a definitively robust
quantitative relationship between clusters and economic
development does not necessarily mean that clusters are
less important than the literature suggests. It may merely
reflect what analysts like Porter (1990, 1998) and
Rosenfeld (1995, 1997) assert: that the most important
aspects of cluster-based economic development are the
social network, collaborative dimensions that are not
readily apparent and quantifiable. From this perspective,
the economic benefits of clusters are enhanced in those
regions that not only have a critical mass within certain
industries but that also deliberately work to create synergy
and leverage the economic development potential that
clusters represent. This aspect of industry clusters and their
effect on economic development is a process question that
warrants further research.

The ultimate research question in this article is whether

or not industry clusters matter for economic development
and, if so, how and why they do. The study finds that
clusters probably do matter, but not necessarily in the ways
suggested by much of the agglomeration literature.
Agglomeration theory points to the external economies that
356

industries enjoy from being clustered together. Whether

these benefits spill over to communities and regions is not
explicitly addressed by agglomeration theory. The results
reported here indicate that merely having an industry
agglomeration or critical mass of firms does not inevitably
translate into higher levels of economic growth and
development. Critical mass is a necessary precondition for
cluster-based economic development but, by itself, does not
ensure a higher level of regional economic performance.
This suggests that what a region does to leverage the
potential of its concentrations of industry may matter more
than simply having a critical mass of firms.

One implication of the findings is that industrial

clustering may hold some promise, but is far from being a
clear-cut magic bullet for economic development purposes.
Industry cluster strategies will likely need to be nuanced to
reflect the characteristics of target industries and particular
economic development goals. Certain industries might be
better candidates than others for cluster strategies if the
goal is improving overall economic growth. If the goal is
decreased economic disparity another set of industries
might be more appropriate. The findings do not provide
conclusive guidance for which clusters are better for
particular economic development outcomes but some
tentative conclusions can be inferred.

The success of a cluster strategy might depend on where

target industries, and the goods and services they provide,
are in their stage of development. This is consistent with
the product/industry life cycle literature.15 Being
specialized in lower wage industries that are adding large
numbers of jobs will likely spur a region’s employment
growth but inhibit per capita income growth. This was the
case with amusement and recreation services, for example.
Regions that are highly specialized in mature industries,
 357

like textile mills, that produce commodity goods, which can

be made more cheaply overseas, will tend to experience
less employment growth. That is unless their economies
are sufficiently diversified to offset the huge job losses
occurring in many traditional industries.

The analysis revealed that some clusters are better for

employment growth and others are more likely to influence
per capita income growth. Clusters also varied in their
effects on economic equality. These findings suggest that
the appropriate policy question to ask is: which clusters for
what purposes? It is prudent that policy makers be
systematic in determining which clusters a region should
target and why. It may not be sufficient to adopt a cluster-
based approach to economic development without clearly
specifying the intended outcomes of such a strategy. Policy
makers must decide what they are trying to achieve and
select clusters accordingly.
358

APPEDIX A
List of Variables in Statistical Analysis

EMPPCHG Percent change in employment, 1990-

2000
PCINPCHG Percent change in real per capita
income, 1990-2000
INCDISP Ratio of central city-to-suburban per
capita income, 2000
HOMEDISP Ratio of central city-to-suburban home
ownership rates, 2000
AGRISVCS, OILGAS, Industrial specialization in each of 28
FOOD, TEXTILES, industry sectors (location quotient),
APPAREL, WOOD, 1990
FURNITUR, CHEMICAL,
RUBBER, PRIMETAL,
FABMETAL, MACHINES,
ELECTRON, TRANSEQU,
INSTRUM, TRUCKING,
AIRTRANS, TRANSERV,
COMMUNIC, DURABLES,
NONDURABL,
INVESTBR, INSURERS,
HOLDINGC, BUSSVCS,
AMUSE, HEALTH,
ENGRMGMT
AGSVCLUS, OILGASCL, Cluster/critical mass dummy variable
FOODCLUS, TEXTCLUS, for each of 28 industry sectors, 1990
APPCLUST, WOODCLUS,
FURNCLUS, CHEMCLUS,
RUBBCLUS, PRMETCLU,
FABMCLUS,
MACHCLUS, ELECLUST,
TREQCLUS, INSTCLUS,
TRUCKCLU, AIRCLUST,
TRANSVCL,
COMMCLUS,
DURCLUST, NONDURCL,
BROKCLUS, INSUCLUS,
HOLDCLUS,
BUSSVCSCLU,
AMUSCLUS, HEALTHCL,
ENGRCLUS
 359

METROPOP Metropolitan population, 2000

COLLEGE Percent with bachelor’s degree, 2000
UNEMPLOY Unemployment rate, 1990
POPDENS Metropolitan population per square
mile, 1990
TAXESPC Local tax revenue per capita, 1992
EXPENDPC Local public expenditure per capita,
1992
NOREAST Location in Northeast region of U.S.
MIDWEST Location in Midwest region of U.S.
WEST Location in West region of U.S.

APPEDIX B
Explanation of Control Variables

Population Size and Density. The literature suggests

that larger urban areas will tend to have more economic
activity and absolute growth by virtue of the urbanization
economies generated from their size. In many studies, total
population in an area and a measure of population density
are included in regression models as control variables
(Wolman 1987; Bradley and Taylor 1996; Olberding 2000).
As such, two variables are included in the current analysis
as indicators of population size and density. The first is
METROPOP measured as the total number of residents in
an MSA in 1990. The second is POPDENS measured as
the total number of persons in an MSA per square mile in
1990. The data for the two variables were compiled from
the U.S. Census Bureau.

Base-Year Economic Conditions. Since the

performance of metropolitan regional economies can vary
considerably at any point in time, it is important to control
for economic conditions at the start of the study period,
1990. The literature suggests that base year economic
conditions are likely to influence subsequent economic
performance. According to cumulative causation theory,
360

the initial economic situation in a place has a snowball

effect and will likely be perpetuated over time. As a result,
market forces will tend to reinforce the trajectories of
decline in lagging regions and continued prosperity in
growing regions (Howland 1993; Malizia and Feser 1999;
Olberding 2000). In essence, a region’s starting point has a
lot to do with where it ends up economically in relation to
other regions. From this perspective, it is possible that
regional differences in economic growth will be sustained
or even worsen in the long-term.

To account for the influence of a metropolitan region’s

initial economic status, a variable UNEMPLOY, measured
as the unemployment rate in 1990, is included in the
regression models. The data for this variable come from
the decennial census numbers compiled by the Lewis
Mumford Center for Comparative Urban and Regional
Research. These data are available for download from the
Mumford Center web site at
[Link]

Workforce Educational Attainment. Endogenous/new

growth theory underscores the importance of knowledge
and human capital in driving economic growth. Proponents
of human capital-based economic development assert that
regional growth is a direct function of the quality of the
local human resource base, which is manifested in the
education and skills levels of the workforce (Mathur 1999;
Bradley and Taylor 1996; Fitzgerald 1993; Ranney and
Betancur 1992). Several studies have empirically
confirmed a strong positive relationship between human
capital and economic development (Wolman 1987; Bradley
and Taylor 1996; Pietrobelli 1998; Plummer and Taylor
2001b). Accordingly, I include a variable to control for
regional differences in workforce capacity. The variable,
COLLEGE, is an indicator of educational attainment in the
 361

population measured as the percent of people aged 25 and

over with at least a bachelor’s degree in 2000. The data for
this variable were compiled from metropolitan
socioeconomic indicators produced by the Lewis Mumford
Center for Comparative Urban and Regional Research.
The Mumford Center data are derived from the decennial
census.

Local Tax Revenues. Since taxes contribute to the cost

of doing business, regions with higher relative tax burdens
are thought to be less attractive to industry. In a summary
review of research on the influence of taxes on state and
local economic performance, Bartik (1992) found that taxes
had a statistically significant negative effect on business
activity in 40 out of 57 studies. Several previous studies of
local economic performance include one or more indicators
of the local tax burden as control variables in their
regression analysis (Goss and Phillips 1999; Kim 2001;
Olberding 2000). Accordingly, the variable TAXESPC or
taxes per capita is included as a proxy for the metropolitan
area tax burden. TAXESPC is measured as the total
amount of general tax revenue collected by local
governments in each region in 1992 divided by the total
population in the MSA in the same year. The data for this
variable came from the 2000 County and City Extra
publication (Gaquin and DeBrandt 2000).

Local Government Expenditures. Many previous

studies of the factors influencing economic development
performance include indicators of the level of local
government spending in core areas like education,
transportation, and public safety (Wink and Eller 1998;
Kim 2001; Olberding 2000). Spending on these local
functions is thought to indirectly affect economic
development outcomes. Some studies attempt to capture
the level of local development effort more precisely by
362

including variables that measure actual spending on

economic development or tax revenues forfeited through
financial incentives (Wink and Eller 1998). It is reasonable
to expect that variations in local government spending will
influence economic development performance to some
degree. Localities devoting more public resources directly
to economic development and indirectly in core service
areas should perform better generally. As such, I control
for the level of local public expenditures by including the
variable EXPENDPC, which is measured as the total direct
general expenditure per capita in 1992. The data for this
variable are based on summations of total spending by all
local governments in each MSA. The data for all MSAs
were compiled from the 2000 County and City Extra
publication (Gaquin and DeBrandt 2000).

Region of the U.S. Metropolitan areas are located in

larger aggregated regions of the U.S. that experienced
varying growth rates and economic conditions during the
study period. The broader regional location of an area is
included as a control variable in a number of pervious
studies of economic performance (Ohuallachain 1991;
Bradley and Taylor 1996; Olberding 2000; Kim 2001).
Wolman (1987), in particular, found that an urban area’s
location in the Northeast and Midwest regions of the U.S.
was the most important factor contributing to poor
economic performance between 1970 and 1980. To control
for macro regional location influences, three dummy
variables are included that indicate whether or not an MSA
is located in the Northeast (NOREAST), Midwest
(MIDWEST), or West (WEST) U.S. census regions. If
located in one of these regions, the MSA is assigned a score
of 1. The south is excluded and serves as the reference
region for the study.
 363

APPEDIX C

Industry Wage Characteristics for

Statistically Significant Industry Clusters

Average Annual Pay, 2000

Selected Industries
Pay Low/High Wage
All private industries in U.S. $35,337
Traditional Manufacturing/Other
Oil and gas extraction $65,856 High
Food and related products $35,164 Medium
Textile mill products $29,050 Low
Apparel $23,545 Low
Lumber and wood products $29,181 Low
Primary metal industries $45,124 High
Fabricated metal products $37,799 High
Knowledge-Intensive Manufacturing
Chemicals $67,409 High
Rubber and plastics products $35,137 Medium
Industrial machinery and computers $53,838 High
Electronic equipment $56,977 High
Transportation equipment $53,303 High
Traditional Services
Agricultural services $20,355 Low
Trucking and warehousing $32,626 Low
Transportation services $35,387 Medium
Air transportation $40,586 High
Amusement and recreation services $23,579 Low
Security and commodity brokers $151,786 High
Insurance carriers $51,123 High
Business services $36,192 High
Health services $34,945 Medium
Knowledge-Intensive Services
Engineering and management services $55,022 High
Source: U.S. Bureau of Labor Statistics
364

OTES

1
Defined as something absolutely indispensable or essential.
2
See Rocha (2004) for a comprehensive review of how the cluster
concept has evolved over time.
3
I acknowledge that there are more sophisticated ways to define an
industry cluster. However, I assume that having a simple critical mass
of firms in a particular industry is a starting point for more advanced
types of clusters.
4
Dynamic localization economies that come from increased
specialization and knowledge spillovers between firms within an
industry are often called MAR (Marshall-Arrow-Romer) externalities
and are most recently reflected in the work of Romer (1986).
5
The concept of dynamic urbanization economies is often referred to as
Jacobs externalities and is attributed to Jane Jacobs (1969; 1985).
6
See Henderson et al. (1995). They suggest that newer industries tend
to thrive in large diverse metropolitan regions while mature industries
do better in smaller, more specialized cities.
7
See for example Nakamura (1985); Moomaw (1998); and Feser
(2002).
8
OhUallachain notes that the retail trade and recreation services sectors
tend to create large numbers of lower wage jobs.
9
The location quotient is a concentration index measured as the share
of metropolitan industry employment divided by the national share of
employment in the same industry. The conventional rule of thumb is
that values greater than 1.0 indicate that an industry is over-represented
in a region relative to the nation as a whole (see Miller, Gibson, and
Wright 1991).
10
There are limitations in using industrial concentration as an indicator
for industry clusters. The level of industrial concentration does not
gauge actual interdependencies or trading relations between firms and
industries. It only provides evidence of the potential for such
interdependencies. The inter-industry linkage dimension of clusters is
not captured in individual industry location quotients. More complex
quantitative techniques for identifying cluster linkages include graph
theory analysis, network analysis, and statistical analysis of zero and
rank order correlation coefficients between industries (Czamanski and
DeAblas 1979). Statistical approaches often rely on factor analysis and
hierarchical cluster analysis and are intended to measure the incidence
of spatial concentration and linkage among related industries.
 365

11
Using the two-digit SIC level of industry detail is fairly common in
studies of industrial agglomeration and specialization. See Mulligan
and Schmidt (2005) for example.
12
I conducted appropriate diagnostic tests to ensure that the data
conform to the assumptions of regression analysis. These include
linearity, normality, homoscedasticity, lack of outliers, and lack of
extreme multicollinearity. The scatterplots of standardized residuals
showed a roughly rectangular distribution indicating no violation of the
linearity assumption. To test for normality, I inspected histograms and
normal probability plots for each of the dependent variables and found
no major deviations from normality. An examination of Mahalanobis
distances revealed four cases that were outliers. Since regression is
particularly sensitive to outliers, I considered dropping the extreme
cases. To assess the possible effect of the outlier cases, I ran the
statistical analysis a second time without the extreme cases. The results
after dropping the outliers were similar to the first set of results.
Therefore, the outlier cases were retained in the analysis.
13
See Mathur (1999) for a treatise on the role of human capital in
regional economic development.
14
See Appendix C, which shows the wage characteristics and
classification of industry sectors for which clustering was found to be
significantly related to metropolitan economic development.
15
See Sternberg 1996; Malizia and Feser 1999; Plummer and Taylor
2001a.

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AUTHOR BIO

Jonathan Q. Morgan is an Assistant Professor of Public

Administration in the School of Government at the
University of North Carolina at Chapel Hill where he
specializes in economic development.

Prior to joining the School of Government, Jonathan

worked for Regional Technology Strategies, Inc., an
economic and workforce development consulting firm
located in Carrboro-Chapel Hill, NC. He has also served as
director of economic policy and research for the NC
Department of Commerce, as well as research and policy
director for the NC Institute of Minority Economic
Development. Currently, Jonathan serves as course director
for the annual Basic Economic Development Course. He is
a member of the NC Economic Developers Association,
ACCRA–The Council for Community and Economic
Research, and the International Economic Development
Council. He holds a B.A. from the University of Virginia,
an M.P.A. from Clark Atlanta University, and a Ph.D. in
public administration from North Carolina State University.

COTACT IFORMATIO

Jonathan Q. Morgan, Ph.D.

Assistant Professor
School of Government
University of North Carolina at Chapel Hill
CB# 3330, Knapp-Sanders Bldg
Chapel Hill, NC 27599-3330
919-843-0972
morgan@[Link]